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A new social contract and a revival in public funding for higher education

by Vincent Carpentier

Longstanding tensions between funding and massification of higher education have significantly intensified, bringing a sense of vulnerability to the system, its institutions, staff, and students. I argue in a recent paper (Carpentier, 2026 – “Is there a case for the revival of public funding in UK higher education? Lessons from history.” Globalisation, Societies and Education, 1–9) that a relentless decline in upfront public funding derailed cost-sharing in higher education, launching a process of public-private substitution with strong implications for sustainability, stability and equity. I connect this shift to the erosion of the post-war consensus initiated by the 1973 crisis and intensified by the 2008 crisis. I discuss how revived public funding towards a reformed higher education system might contribute to and benefit from a revisited welfare state, renewing the social contract away from an increasingly unequal socioeconomic system.

The long retreat of public funding

Public funding was a key driver of the first phase of massification of the 1960s under a binary system shaped by universities and the public sector of higher education spearheaded by polytechnics. Grants to institutions and their students, driven by aligned political, economic, and social rationales, were considered as integral parts of the construction of the welfare state driving the post-1945 social contract.

Figure 1: Income structure of higher education institutions and enrolment (universities only before 1992) UK 1921–2024.

Source: Carpentier, 2026

This public investment peaked at 90% of higher education income in the early 1970s. It was then interrupted by the 1973 crisis which challenged the postwar consensus with supply side lower taxation policies seeking to limit public funding of the social sphere and encourage its privatisation. The translation of that process to higher education led at first to a slowdown in expansion in the 1980s before becoming the template of a much more marketised second phase of massification (under a newly unified system with the polytechnics having become universities in 1992). Cost-sharing – which had started with the introduction of international fees in 1967 and their rise to full-cost in 1981 – was extended to home students with the introduction of loans in 1990 and of £1K means-tested upfront fees in 1998. Differences within the UK are important to consider as Scotland abolished fees in 1999 unlike the other nations (Shattock and Horvath, 2020).

In 2006, home fees tripled to £3K and became deferred, funded by income contingent state-backed loans. What were then called ‘top-up fees’ coincided, as part of a cost-sharing agenda, with sustained grants to institutions and students: however, the share of public funding had already declined to 50% by 2008. The global crisis intensified that decline. Home fees tripled again in 2012 while teaching grants to institutions were largely scrapped in 2010. Grants to students were gradually replaced by loans and suppressed in 2016: public funding only represents 20% of institutional income today (28% if an estimation of non-refunded loans subsidised by the government is included).

Shift from cost-sharing to public/private substitution of funding

I argue that this concomitance of the rise in fees and reduction of grants represents a shift in the dynamic between public and private funding: fees started to replace rather than top up public funding. This process of public/private substitution, which derailed the cost-sharing agenda after the 2008 crisis, had many implications. Firstly, substitutive fees do not generate additional resources and therefore do not address issues of financial sustainability affecting institutions and their staff (Carpentier and Picard, 2024). Moreover, substitution increased the vulnerability of institutions and the whole system which, in the absence of the shield of public funding, became over-reliant on volatile private resources such as home and international fees. Substitution also intensified a longstanding unequal institutional differentiation. The inequalities between universities and polytechnics at the heart of the binary system of the first massification of the 1960s were reproduced by those between pre/post-92 and Russell group universities of the unified system of the second phase of massification (Carpentier 2021).

Substitution also affects equity as higher fees coincided in a context of austerity with the gradual replacement of grants by increasingly less generous loan system with rising repayment costs (Callender, 2017): this deactivated the cost-sharing mechanisms designed to mitigate for the negative impact of fees on access and students’ debt (de Gayardon and Callender, 2025; Ghaffar and Hordósy, 2026). Finally, substitution affects how higher education is or is perceived: lower public funding and higher fees reflecting marketisation (Robertson and Martini, 2023) and hypercommodification (Boliver and Promenzio, 2025) slowly undermined the real and perceived public good of higher education (Marginson and Yang, 2025) while strengthening its conception as a private good. That private good was itself increasingly undermined by a falling graduate premium and unemployment (unequally according to institutions and social capital), aggravated by higher inflation and loan interest rates. Both public and private cases for higher education are now increasingly difficult to make.

Inequalities and the erosion of public services and socioeconomic vulnerabilities

The issues raised by substitution threatening higher education are symptomatic of wider ideological choices regarding the links between economic and human developments that characterised the post-1973 socioeconomic model. That favoured competition over collaboration, the individual over the collective, focusing on public deficit while minimizing private debt, considering social spending as a byproduct of growth rather than an investment. Those approaches shaped the growth model of the 1990s based on deregulated globalisation, financialisation and lower social protection – which generated unsustainable levels of inequality masked by private debt and cheap imported products until the explosion of the subprime market kicked off the 2008 crisis. Inequalities were initially acknowledged as a source of the crisis  (Piketty, 2024) before being overlooked and intensified by austerity policies (Farnsworth and Irving, 2018).

Covid-19 showed (Tooze, 2021) the cost of not having addressed inequalities and the erosion of public services in terms of vulnerabilities of economies and societies but also demonstrated the value of what remained of the welfare state as collective shielding (Carpentier, 2021).  Again, this acknowledgement vanished with the “return to normality”. Stagflation and energy crises are reminders that we ignore the impact of the crisis of neoliberalism on inequalities at our peril, especially as they fuel neonationalist tensions within and between countries. This should lead to reflect on finding another route out of the crisis through a revisited welfare state and to consider how higher education might contribute to it and benefit from it.

A new social contract: transformative crises and the case for countercyclical spending

Is the post-1945 progressive social contract based on the welfare state a one-off historical product of unmatched human and physical destruction? Can socioeconomic transformations addressing inequalities only be triggered by catastrophic events? The human impact on climate change seems serious enough to require a new social contract still nowhere to be seen. Looking back at Kondratiev cycles offer hopeful examples of earlier crises which, unlike 1973 and 2008, were deeply transformative (Carpentier, 2015). The crises of 1833, 1873 and 1929 all triggered countercyclical social spending funded by progressive taxation leading to technological and social innovations. Each crisis revived productivity while reducing inequalities and incrementally transformed the socio-economic system and crystallised into the post-war consensus (Fontvieille and Michel, 2002).

A revival of fair taxation today to finance countercyclical spending might be the opportunity to drive a new social contract correcting an unsustainably unequal socioeconomic system characterised by the emergence of technological innovations without social transformations and regulations protecting people, their economy, society, and environment. Higher education should contribute to that change alongside other levels of education (Scott, 2021) and the whole social sphere. Reversing public/private substitution through revived grants to institutions and students is urgent to ensure that higher education shifts its focus from its own unsustainability and instability to tackle inequalities and address the interrelated political, economic, social and environmental challenges ahead (Carpentier and Unterhalter, 2022; McCowan, 2025). Rebalancing the funding of higher education is about realigning its economic and other rationales (Ashwin et al, 2026) and reviving a public service of higher education anchored to a revisited welfare state able to drive a renewed social contract reconciling economies and societies.

Vincent Carpentier is Professor of Higher Education and Society at the UCL Institute of Education. His teaching and research activities are located at the interface of history of education and political economy. His comparative research explores the historical relationship between educational systems, Kondratiev cycles and social change. He is particularly interested in exploring the long-term connections and tensions between funding, expansion and institutional differentiation of higher education systems at both national and global levels.


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The VERY big financial picture for English universities?

By David Palfreyman

The Financial Sustainability Strategy Group, a dedicated bunch of HE nerds, has churned out 90 pages on the funding model of UK universities (February 2019), based on TRAC data (Transparent Approach to Costing, as compiled and collated since 1999). 

The core activity of teaching UK/EU undergraduates brings in c£13.25billion of income and covers its full economic cost (FEC). Within that overall picture, subjects vary in matching fee income to their FEC. Even after some (HEFCE) top-up grant subsidy for STEM, there is an internal transfer as subsidy to STEM from the cheap-to-teach and massively expanded subjects such as Law and Psychology, as well as the cheap but less expanded Humanities. International student fee income is c£4.5billion, with a third of such high fee-payers coming from China. The FEC is more than covered – leaving a 40% surplus transferred to subsidise research. 

Research generates c£9.25billion (£1.5billion as HEFCE QR and the rest as grants/contracts from various sources) but recovers only about 75% of its FEC. Research grants from Government cover 80% of their FEC, from industry and the Research Councils 75%, from the EU 65%, and from charities 60%. The overall loss on research will, therefore, vary according to the mix of research funding from these various sources. The Russell Group lose the most but are best placed to attract more international student fees. A thing called ‘Other Activities’ generates c£5.5billion and has a 15% profit on its FEC – again a source of subsidy for over-trading in under-priced research. 

What are the challenges and threats to this financial model? 

  1. Any wobble in the UK share of the global student market – especially since most universities in their financial projections make happy assumptions about growing their International fee income. 
  2. The hikes due in employer contributions to USS (c5%) and to TPS (c8%). 
  3. The freezing of the £9250 UK/EU UG fee.  
  4. The impact of (now unlikely?) Brexit on EU undergraduate numbers and their fee income – although the loss of EU research grants when every one involves a subsidy of 35% of the FEC would be no bad thing!
  5. Whether the Augar Review will recommend UK undergraduate fees should be cut from £9250 to, say, £7500 – and, even if it does, whether any Government ever implements the proposal.
  6. How those universities that have borrowed massive amounts will be able to service the interest payments as the above happens – let alone save up so as one day to repay the capital. 

In the current financial year English universities get c£1.5billion of funding from the OfS, mainly for the extra cost of STEM teaching over and above the £9250 tuition fees but also for various specialist programmes. Then some £1.6billion is shared out by UKRI to all UK universities as support for research (based on the REF). The OfS and UKRI funding is the job HEFCE used to do before the 2017 Higher Education and Research Act. So the direct taxpayer spend on HE is c£3billion pa, plus spending on support for teaching in UK universities beyond England – and not counting the cost of the subsidy to the student loans system, nor the financing of the various research councils. 

We await the Augar Review; meanwhile the supply of UK 18-year olds continues to decline until the early 2020s, which can be bad news for some universities, as the OfS warned in its analysis of Financial Sustainability of Higher Education Providers in England on 4 April 2019. The flow of EU students may reduce IF Brexit ever happens, and on the spending side institutions face significant increases in employer contributions to pensions. All in all, this is not a rosy picture in the short term and potentially grim in the medium term – unless, of course, the Augar Review gets lost in the context of Brexit-induced government chaos or the Treasury generously substitutes extra grant funding for any Augar reduction in the £9250. Unless indeed any ‘Brexit dividend’ leaves room for more public spending on HE as a call on taxpayer largesse alongside the NHS, social care for the elderly, the funding of schools, etc etc…

SRHE Treasurer David Palfreyman is Bursar, New College, Oxford, Director of the Oxford Centre for Higher Education Policy Studies (OxCHEPS), and a member of the Board of the Office for Students. He writes in a personal capacity.